Category: M1
M1 – CIMB
Mixed 4Q but rising expectations of capital management
• Upgrade from NEUTRAL to Outperform; results in line. FY09 core net profit formed 100% and 98% of our forecast and consensus. A final DPS of 7.2 cts brought full-year gross DPS to 13.4 cts (CIMB-GK: 13.7 cts) for a payout of 80%, also within expectations. We have trimmed our FY10-11 earnings estimates by 1-2% after some housekeeping. However, we maintain our DCF-based target price of S$2.07 (WACC 9.5%). M1 remains our top Singapore telco pick. We upgrade it to OUTPERFORM from Neutral on our view that there would be likely capital management in 2010 and market-share gains from NGNBN.
• Mixed 4Q. 4Q09 topline jumped 15% qoq on the back of a 2.4x surge in handset sales primarily from the sale of iPhones and full-quarter contributions from the broadband provider, Qala (now known as M1 Connect). Stripping away these items, service revenue improved a mere 1% qoq as postpaid revenue only rose 2% qoq while prepaid revenue was flat. M1 booked maiden revenue from Qala which resulted in a S$5.3m contribution to its fixed broadband business (S$0.6m in 3Q09). EBITDA margins were down 3.1% pts qoq in 4Q09, compressed by higher SACs from the usual festivities and its iPhone launch.
• Conservative 2010 guidance. While M1 aims to raise revenue and its mobile market share in 2010, it has guided for comparable earnings in 2010 vs. 2009, implying lower margins. We believe the guidance is conservative as M1 is concerned about rising competition from the launch of the Next Generation National Broadband Network (NGNBN), despite cost savings from its backhaul investments. We are more aggressive, projecting 11% net profit growth for FY10, on higher revenue driven by roaming and economic recovery and lower opex due to its backhaul.
• Clearest hint of capital management. M1 said it would review its capital structure following the re-financing of its S$250m loan in 1Q10 and amid more clarity on the sustainability of the economic recovery. Coupled with our projection that its net debt/EBITDA could fall to 0.4x by end-2010 (assuming no special dividend/capital reduction) from 0.8x in 4Q09, we are keeping our expectations of a special dividend or a capital reduction of 23.5 cts for FY10.
M1 – BT
M1’s Q4 net profit up 1.6% at $37.2m
Revenue rises 11% to $216.2m, thanks to higher handset sales
MOBILEONE’s net profit inched up 1.6 per cent to $37.2 million for the fourth quarter of 2009, from $36.6 million for the year-ago comparative period.
For the full year ended Dec 31, 2009, net profit rose 0.1 per cent to $150.3 million, from 2008’s $150.1 million.
Fourth-quarter operating revenue rose 11.1 per cent year-on-year to $216.2 million. This was helped by higher handset sales, which surged 126.5 per cent year on year to $36 million for Q4 ’09 and 30.2 per cent to $80.9 million for FY09 mainly due to higher sales volume. Compared with 3Q09, it rose 135.9 per cent.
In Q4, MobileOne had thrown its hat in the iPhone ring and offered the Apple touchscreen phone to customers, after a 15-month monopoly on the phone by SingTel.
‘The response to the iPhone was overwhelming. Our shops have been kept very busy, far beyond our expectations,’ said Karen Kooi, MobileOne’s chief executive officer.
Operating revenue for 2009, however, dipped 2.4 per cent to $781.6 million due to lower service revenue.
Mobile revenue slipped 1.6 per cent year on year to $143.1 million in Q4 and 5.9 per cent to $565.7 million for 2009.
The post-paid segment saw revenue shrink 2.4 per cent to $124.7 million in Q4 because of lower voice usage and roaming revenue. Revenue from the pre-paid segment, however, grew 3.8 per cent in Q4 to $18.4 million.
MobileOne’s total customer base grew by 128,000 year-on-year and 40,000 quarter-on-quarter to 1.758 million customers in Q4, 52 per cent of which were post-paid customers and the rest, prepaid customers. Its overall market share was 25.7 per cent.
MobileOne will be banking on its Next Generation National Broadband Network (NGNBN) for growth in 2010.
‘The NGNBN, to be launched this second quarter, will present new and exciting opportunities for MobileOne. For 2010, we aim to grow revenue and mobile market share,’ said Ms Kooi.
‘Based on the current outlook, we foresee earnings this year to be comparable to 2009.’
Ms Kooi did not rule out MobileOne’s bringing in the Google Nexus One handset, saying that the company will review whether or not to bring in new phones, including Google’s.
A final tax-exempt dividend of 7.2 cents per share has been recommended, taking the group’s full-year payout to 80 per cent of net profit after tax for 2009. The interim dividend in 2009 had been 6.2 cents per share, bringing total dividend for the year to 13.4 cents per share.
Earnings per share rose 2.4 per cent year-on-year to 4.2 cents for Q4 but were flat for the year, at 16.8 cents.
MobileOne shares closed trading yesterday at $1.97.
M1 – BT
M1 to test ‘4G’ in Feb
MOBILEONE (M1) is testing a so-called fourth-generation – or 4G – cellular technology known as Long Term Evolution (LTE), which promises mobile broadband speeds zippy enough to dispatch bandwidth-sapping high definition (HD) TV content to mobile device users.
The telco said yesterday that it will be conducting a two-month trial from next month, and the public can get to witness this technology’s power at M1’s flagship store in Paragon, where there will be showcases of HD TV streaming and high-speed Web surfing over LTE.
M1 is currently modernising its 2G network to prepare it for a smooth transition to LTE. In the process, the telco expects to slash its telecommunications networks carbon footprint by up to 35 per cent by early 2011. This will be possible due to the use of energy-efficient equipment from Nokia Siemens Networks, which will see action in the upcoming LTE trial.
‘Our network modernisation contract with Nokia Siemens Networks represented our first steps in our evolution to LTE,’ said M1 chief technical officer Patrick Scodeller. ‘The trial will help pave the way for faster and better quality mobile broadband services in the future.’
Demand for mobile broadband services has been soaring, sparked by bullish sales of Internet-savvy smartphones such as the iPhone and Android phones. This has fanned interest in next-generation cellular technologies like the LTE, which is expected to succeed the popular High Speed Packet Access (HSPA) technology.
The LTE market is expected to be huge. According to Juniper Research, LTE services will exceed US$70 billion globally by 2014.
Last November, SingTel said it will be conducting LTE trials across Singapore, Australia, Indonesia and the Philippines in the first half of this year. It will be partnering Australian subsidiary Optus, Indonesia’s Telkomsel and the Philippines’ Globe Telecom for the trials.
M1 – DBS
Capital management potential
• We expect at least 9% cash yield from capital management in addition to 7% dividend yield.
• Not much risk to stable FY10F earnings, despite higher competition, due to cost savings from
backhaul network.
• M1 has slightly underperformed STI by 1% since our downgrade on 22 Oct 09. Upgrade to BUY with revised TP of S$2.15 based on 13x FY10F (12x earlier)
We estimate S$160m-185m (DPS of 18-21 Scents) from potential capital management exercise. In the past, M1 has returned excess cash regularly to shareholders except for 2008 and 2009, when capex was
higher due to the construction of the backhaul network. M1 is past its peak capex in 2009 with the completion of the backhaul network. Our model suggests that M1 can easily pay out S$160m-S$185m to its shareholders, based on its free cash flow. Paying out S$160m in capital management would raise its net debt to EBITDA from 0.7x to 1.2x, still well below its target 1.5x-2.0x.
Would it be special dividends or capital reduction? M1 has done both in the past. We believe that options would be one-time special dividend, special dividends at regular intervals or capital reduction. In any case, we expect the share price to benefit from these actions. We believe that a capital management exercise could be announced with 1Q10F results.
Backhaul savings of S$10-15m helps to underpin stable FY10F earnings. We use 13x PER compared to 12x previously to account for capital management potential in FY10F. Based on 13x FY10F PER, our revised target price is S$2.15.
TELCOs – BT
A tale of two halves for local telco sector
Operators come to life in second half after six-month hibernation
2009 has turned out to be a tale of two halves for Singapore’s telecommunications sector, with operators stirring to life in the second half after a six-month hiatus. And the action can only get more sizzling as the key players brace for heightened competition with the arrival of the new nationwide, ultra high-speed broadband network in 2010.
In the first six months of this year, Singapore Telecommunications, StarHub and MobileOne were mostly in hibernation, relying on a mix of tight cost controls and recurring subscriber revenues to tide them through the global downturn.
While many companies struggled, the three operators proved their mettle by delivering an encouraging set of first-half results in spite of the economic difficulties.
StarHub’s net profit rose 11 per cent during the period to $160.3 million, while M1’s net income fell marginally by 0.3 per cent to $78.9 million.
SingTel’s profit for its fiscal fourth quarter ended Mar 31 declined 17 per cent due to its overseas exposure. However, it rebounded strongly three months later with a 7.7 per cent rise in net income to $945 million for its first quarter ended June 30.
‘The biggest highlight was basically being able to grow the revenue from our Singapore business, our Ebitda (earnings before interest, tax, depreciation and amortisation) and free cash flow,’ said Allen Lew, CEO of SingTel Singapore.
While the telco front was starved of major competitive strides in the first half, one operator did ring in major changes to its management deck from the get go. In January, M1’s CEO of 12 years, Neil Montefiore, announced his resignation. Its long-serving chairman, Lim Chee Oon, also stepped down two months later.
M1’s chief financial officer Karen Kooi eventually took over the reins in April, becoming the second local telco CFO to be promoted to the top job after SingTel’s Chua Sock Koong. Teo Soon Hoe, Keppel Corp’s senior executive director and group finance director, took up the post of M1 chairman.
The first half also saw the start of another round of merger talks between SingTel’s Indian associate Bharti and South Africa’s MTN Group but regulatory hiccups caused the deal to be scuppered a second time.
But StarHub’s attempt at business diversification eventually succeeded as its subsidiary Nucleus Connect clinched the government’s OpCo (operating company) tender to operate the Next-Gen NBN (National Broadband Network), the country’s new fibre-optic broadband superhighway. ‘It is a milestone for us to win the bid to build and manage the OpCo for the Next-Gen NBN. This is the more exciting and innovative part of the Next-Gen NBN infrastructure,’ said StarHub spokeswoman Jeannie Ong.
Past the half-year mark, signs of economic recovery reignited the competitive flames among the three warring factions.
SingTel started the ball rolling by retaining its exclusive rights to sell the latest version of Apple’s coveted touch-screen handset – the iPhone 3GS – in July.
In the same month, StarHub announced that it had poached Mr Montefiore to succeed its outgoing chief Terry Clontz. Mr Clontz will retire at the end of this month.
M1, on its part, signalled its intention to branch into the broadband market by buying Internet service provider Qala for $14.9 million in September.
A month later, any uncertainty surrounding the change-of-guard at StarHub was made worse when SingTel managed to score the broadcast rights to the English Premier League (EPL) for its mio TV platform in October.
‘I have not seen so many people talk about mio TV until we won the EPL. The ability to bring mio TV from being a niche product to a must-have product is significant,’ SingTel’s Mr Lew said.
‘While we may not have the rights to air the EPL for the next three seasons, it is not game over for us. StarHub still has a wide array of content,’ responded StarHub’s Ms Ong.
While ‘robbed’ of the crown jewel of its cable programming, StarHub – along with M1 – finally managed to land the star of SingTel’s handset portfolio, the iPhone 3GS. The device, which went on sale at StarHub and M1 shops earlier this month, sparked off one of the fiercest mobile skirmishes in local history. StarHub upped the data bundle for its basic iPhone plan tenfold in a day in response to M1’s generous subscription packages. SingTel reacted the next day by doing the same.
Such tit-for-tat battles will likely continue into 2010 when the Next-Gen NBN starts to come online from the end of the first quarter, market watchers say.
‘Starting from a very low base, we believe that M1 is likely to benefit the most from this as it would be able to offer fixed line broadband services on an equal footing. It will also be able to make its maiden foray into the more lucrative corporate broadband arena with Qala,’ said OCBC research analyst Carey Wong.
StarHub, on the other hand, will finally get a chance to provide Internet connectivity to corporate customers, while SingTel can now replace its aging copper cables with high-speed fibre-optic pipes, he said.